Role of SPACs in IPOing stocks

Abstract

SPACs or Special Purpose Acquisition Companies are blank check companies available as investment vehicle in financial markets. SPACs are public companies formed with the intention of merging with a private company. After the merger the SPAC dissolves and the merged entity continues as a public company. As investment vehicles, SPACs can be traced back to late 18th century England when black checks were first used as blind pools by the infamous South Sea Bubble. The earliest instance of SPACs in the American market was in 1920s where they were used as investment vehicles. In past 2-3 years, SPACs have grown both in the number of deals and volume traded. Through this project, we have explored the reasons behind this sudden boom in the SPAC market and why investors are keen on taking the SPAC route to go public. We have analyzed SPACs data for US markets to figure out the rationale for investors investing in SPACs as opposed to IPOs. Additionally, we examined the academic and financial literatures related to SPACs, describing their institutional characteristics and their market performance since Initial Public Offering (IPO).